ConocoPhillips (NYSE:COP) has received a $5 billion bid for a substantial portion of its producing, developing, and emerging oil sands assets in Alberta. This bid was placed by a consortium of Indian companies: Oil & Natural Gas Corporation (ONGC), Indian Oil Corporation, and Oil India Limited, back in July. This information, however, was made public only now by unnamed executives at these firms. The bidding process is now closed.
Conoco had appointed investment banking firm Scotia Waterous as the exclusive financial adviser to assist in its search for a buyer for up to 50% stake in these assets. The offering comprises of ConocoPhillips’ Surmont, Thornbur, Clyden, Saleski, Crow Lake, and McMillan Lake assets, most of which are undeveloped. ConocoPhillips has already sold its stake in the Syncrude Canada oil sands mining venture to Sinopec of China in 2010 for $4.7 billion. 
What Are Oil Sands?
Oil sands are naturally occurring geologic formations that contain a mixture of water, sand, and bitumen. Bitumen is a category of organically-based liquids that are highly viscous, black, and sticky. This resource requires special extraction methods to get it out of the ground and into a form where it is fluid enough to travel down the pipelines for refining into gasoline and other hydrocarbon products. It can be modified by mixing it with fresh water and a small amount of phenol-based surfactant. The resulting mixture has properties similar to conventional fuel oil. 
Why Does ConocoPhillips Want Partners For These Assets?
ConocoPhillips has been looking to sell assets in a number of countries, including Nigeria, as part of a global restructuring plan aimed at improving finances and boosting shareholder value. ConocoPhillips in April this year became a pure exploration-and-production company, while its refining, midstream and chemicals segments were spun off into a new company, Phillips 66. Of its six properties on offer in Canada, only Surmont, run as a joint venture with France’s Total SA, is producing oil. Located in Alberta, this property pumps about 25,000 barrels of bitumen a day. The partners are working to boost that to 136,000 barrels per day, starting in 2015.
Canada’s oil sands, with their unique resource base, rapid growth and development plans, present a number of unique hurdles. These challenges affect the whole industry, not just ConocoPhillips, which plans to grow production by 10-15% per year through 2020. Now, more than ever, public attention is focused on new technology, innovation, sustainability and environmental research.
Oil sands producers hope that joining forces will allow for rapid adoption of technological solutions that both lighten their environmental footprint and reduce costs, thus benefiting consumers as well as the public well-being. We believe that oil companies think that this is essential to avoid public criticism toward what is essentially looked upon as a polluting industry. Also, a lot of capital investment is needed to develop these resources, which can be generated by bringing in more partners. 
Why Are Indian Companies Interested?
India is the world’s fourth biggest oil importer, buying nearly 80% of its oil needs from other countries. Faced with ever-rising fuel demand on account of a fast-growing economy, the government has told state energy firms to secure energy assets overseas to help power the expanding economy.
ONGC, the primary upstream player in India, has had a stagnant output for years now due to maturing fields as well as lack of sufficient efforts in developing new fields. ONGC Videsh Limited, the overseas investment arm of ONGC, announced last year that the firm would seek to buy assets in politically less risky regions such as North America to cut its risk and boost output. We think that focusing on countries with less political risk makes sense because oil and oil-equivalent gas output from ONGC Videsh’s assets may decline in the current fiscal year due to geopolitical problems in Sudan and Syria.
ONGC Videsh aims to invest $20 billion to help increase its output seven-fold by 2030. Northern Alberta’s oil sands are one of the world’s largest known hydrocarbon deposits, considered second in size only to those found in Saudi Arabia. We believe that this one big reasons why Indian state energy firms are keen on this resource. 
Bitumen forms less than 1% of the company’s business currently but is expected to increase considerably going forward, with further development of oil sand reserves.
We recently revised the Trefis price estimate for ConocoPhillips to $60 which is in-line with its market price.Notes:
- Deal Journal India: India Bids for ConocoPhillips Assets in Canada, WSJ [↩]
- Bitumen-based fuel, Wikipedia [↩]
- Oil Sands, ConocoPhillips Website [↩]
- ONGC, IOC, Oil India bid for Conoco Canada oil assets, Reuters [↩]